Singapore Telecoms Sector - Credit Suisse

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 March 2017 Asia Pacific/Singapore

Equity Research Telecommunication Services

Singapore Telecoms Sector Research Analysts

Varun Ahuja, CFA

65 6212 3017

[email protected]

THEME

Four is a (bigger) crowd Figure 1: TPG can be EBITDA breakeven at ~17% discount to current

sector ARPU with 6% mobile and fixed broadband subs share

Source: Credit Suisse estimates

■ Addressing key investor queries. With TPG telecom (TPG) emerging as the fourth mobile operator in Singapore, the key questions in investors’ mind are: (1) How much will it cost to build the mobile network?, (2) What are the likely operating costs?, (3) At what ARPU levels TPG can break even?, and (4) Is there more downside to StarHub’s and M1’s stock prices from current levels? In this report, we aim to address these queries. Based on inputs from various industry participants, we have developed a proprietary new operator model to look at the new operator's economics.

■ TPG likely to spend ~S$500 mn on capex by 2021E. We expect TPG to start mobile services in 2H 2018 with 775 macro sites and then to gradually ramp-up to ~1,000 sites by 2021E. On in-building coverage, we expect TPG to have coverage of 575 buildings at the beginning which is likely to expand to 930 buildings by 2021E. We expect the total capex to be ~S$500 mn by 2021E (out of which ~S$300 mn will be spent by 2018E).

■ Pricing likely to fall by 15-25% over the next three years. We forecast TPG’s steady state operating expenses to reach S$185 mn by 2022E, representing ~51% of M1’s 2016 operating cost. Our sensitivity analysis suggests that TPG would turn EBITDA breakeven at a discount of ~17% to the current service ARPU of S$33 with mobile subs share of 6% and fixed broadband subs share of 6%. The ~17% discount can come down further to ~25% if TPG can operate at 45% of M1's cost structure.

■ Remain underweight on M1 and StarHub. We think current stock prices of

M1 and StarHub are not fully factoring the increasing competitive dynamics.

We see downside risk to consensus 2018/19 EPS estimates for M1 and

StarHub. SingTel is our top pick as it has the least exposure to Singapore

mobile sector. We have cut our 2017-19E EPS for M1 and StarHub by 0-4%

as we bake in higher subsidies. As a result, our target prices for M1 and

StarHub reduce by ~3% to S$1.50 and ~4% to S$2.25, respectively.

3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%

-45.0% (115) (86) (57) (29) 0 29 58

-37.5% (107) (74) (42) (9) 24 57 89

-30.0% (99) (63) (26) 11 47 84 121

-22.5% (91) (51) (10) 30 71 112 152

-15.0% (84) (39) 6 50 95 139 184

-7.5% (76) (27) 21 70 118 167 215

0.0% (68) (15) 37 89 142 194 247

% d

isco

un

t to

cu

rre

nt

serv

ice

AR

PU

(S

$33)

Subscriber m arket share (%)

2 March 2017

Singapore Telecoms Sector 2

Focus charts and table Figure 2: TPG's capex and opex forecasts Figure 3: RoCE sensitivity analysis

Source: Credit Suisse estimates Source: Credit Suisse estimates

Figure 4: M1's current SIM only plans and EBITDA

breakeven levels for TPG

Figure 5: TPG's current spectrum portfolio should

be able support subs market share of till ~28%

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates

Figure 6: Downside likely to consensus 2018E EPS Figure 7: Asian telcos dividend yield spread comps

Source: IBES, Credit Suisse estimates Note: Data as on 28 Feb 2017; Source: Company data, Credit Suisse estimates

Figure 8: Singapore telecoms valuation comparison

Rating CP TP % Up/ Mkt cap P/E (x) EV/EBITDA (x) FCF yield (%) Div. yield (%)

(S$) (S$) (down) (US$ m) 2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E

SingTel O 3.94 4.60 16.8% 45,861 16.0x 15.4x 7.2x 6.9x 5.2% 5.4% 4.6% 4.8%

StarHub U 2.88 2.25 -21.9% 3,551 18.0x 21.6x 9.0x 9.8x 5.5% 5.1% 5.6% 5.6%

M1 Ltd U 2.08 1.50 -27.9% 1,389 14.8x 19.6x 7.8x 8.7x 4.9% 5.7% 5.4% 4.1% Note: Prices as of 28 Feb 2017; O = OUTPERFORM, U = UNDERPERFORM; Source: Company data, Credit Suisse estimates

(S$ / mn) 2017E 2018E 2019E 2020E 2021E 2022E

Capi tal expendi ture

Total macro capex 35 33 7 6 5 2

Total IBS capex 72 135 63 36 29 14

Other capex 5 15 15 18 20 19

Total capex 112 183 85 60 54 36

Operat ing expenses

Network expenses 5 34 51 57 61 65

Transmission expenses 0 18 26 35 44 51

Sales and marketing 0 19 30 33 32 29

G&A expenses 10 20 28 34 38 41

Total operat ing expenses 15 91 135 159 175 185

3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%

-45.0% -14.7% -12.3% -9.9% -7.5% -5.1% -2.7% -0.3%

-37.5% -14.0% -11.3% -8.6% -5.8% -3.1% -0.4% 2.3%

-30.0% -13.4% -10.3% -7.3% -4.2% -1.2% 1.9% 4.9%

-22.5% -12.7% -9.3% -6.0% -2.6% 0.8% 4.2% 7.5%

-15.0% -12.0% -8.3% -4.7% -1.0% 2.7% 6.4% 10.1%

-7.5% -11.4% -7.4% -3.3% 0.7% 4.7% 8.7% 12.7%

0.0% -10.7% -6.4% -2.0% 2.3% 6.7% 11.0% 15.4%

% d

isco

un

t to

cu

rre

nt

se

rvic

e A

RP

U (

S$33)

Subscriber market share (%)

25

31

37

43

47

15

20

25

30

35

40

45

50

Data - 4GB Data - 6GB Data - 8GB Data - 10GB Data - 12GB

Current sector service ARPU (S$33/mth)

EBITDA breakeven ARPU @ 6% subs share

EBITDA breakeven ARPU @ 7.5% subs share

(S$/month)

0

50

100

150

200

250

0% 5% 10% 15% 20% 25% 30% 35% 40%

Peak hour network traffic (Mbps)

Actual network capacity @ 35% of the theoretical speed of 450Mbps

(Mbps)

(Subs market share, %)


55

60

65

70

75

80

85

90

95

100

105

Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17

M1 Consensus

STH Consensus

STEL Consensus

StarHub - Current CSe

SingTel - Current CSe

M1 - Current CSe1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

Sing

Tel

M1

Star

Hub

HKB

N

HTH

K

CH

T

Smar

Tone

FET

TWM

HKT

PCC

W

+/- 1 SD Hist average Current

2 March 2017


Four is a (bigger) crowd

TPG likely to spend ~S$500 mn on capex by 2021E We believe TPG has a good mix of low band and high band spectrum which should aid in

a cost efficient roll out of the 4G network. Also, our analysis suggests that TPG’s current

spectrum portfolio should be able to support subscriber market share of ~28%. We expect

TPG to start the mobile services in 2H 2018 with 775 macro sites and then to gradually

ramp-up to ~1,000 sites by 2021E. We estimate the total capex for rolling out 1,000 macro

sites will be ~S$85 mn. Besides macro coverage, in-building coverage presents one of the

key challenges for the new entrant given significant amount of data usage happens indoor.

Though having a sizeable quantum of low band spectrum aids in providing good in-

building coverage, TPG would need to have basic building coverage to provide quality

service. Based on our checks, currently incumbents have in-building solutions (IBS) in

around 1,000 buildings. We expect TPG to start mobile services with coverage of 575

buildings which is likely to expand to 930 buildings by 2021E. We expect the total cost of

installation for IBS to be ~S$335 mn by 2021E.

Pricing likely to fall by 15-25% over the next 3 years Based on inputs from various industry participants, we forecast TPG’s steady state

operating expenses to reach S$185 mn by 2022E, representing ~51% of M1’s 2016

operating cost. Assuming a 10% variation in the operating costs, we believe the range of

operating expenses can be 45-55% of M1’s current operating cost. That said, we see

more downside risk to our operating costs base case assumptions as we have kept some

buffer in many cost items given our negative view on the sector. We think our assumptions

are reasonable given that M1 has lot of legacy costs and TPG can also drive significant

cost savings from its Australia business. Our sensitivity analysis suggests that TPG would

turn EBITDA breakeven at a discount of ~17% to the current service ARPU of S$33 with

mobile subs share of 6% and fixed broadband (BB) subs share of 6%. The ~17% discount

can come down further to ~25% if TPG can operate at 45% of M1's cost structure. We

would highlight that TPG has guided to turning to EBITDA breakeven with 5-6% subs

market share. Our forecasts appear to be in line with the guidance. While for RoCE, TPG

would turn RoCE breakeven at a discount of 9% to the current service ARPU with mobile

subscriber market share of 7.5% and 6% market share in the broadband segment.

Competition to intensify in mobile and BB segments Though the mobile sector has seen some price competition over the last 12-18 months,

we think pricing is likely to deteriorate further over the next three years as TPG is known to

disrupt the market. Also, our EBITDA breakeven analysis corroborates the same. We

believe, as part of its go-to-market strategy, TPG may only charge for data services while

offering free voice and other services. We expect TPG to capture ~6% mobile subscriber

market share by 2021E and pricing is likely to be the main lever to gain market share. We

expect TPG to launch broadband services in Singapore in 1H 2018 as it would help the

company to compete more effectively in the mobile market. Hence, we expect competition

in the broadband sector to resume with the potential entry of TPG and forecast TPG to

capture ~5% broadband subscriber market share by 2021E.

Remain underperform on M1 and StarHub Singapore mobile revenue declined by ~3% in 2016, impacted by poor data monetisation

with operators launching aggressive data add-on plans during the year. We expect sector

revenue to decline at a three-CAGR of ~4% till 2019E due to price competition. Further,

we think handset subsidies are likely to increase over the next 12-18 months as operators

look to lock in customers. We maintain UNDERPERFORM on M1 and StarHub as we

believe current stock prices are not fully baking in the increasing competitive dynamics.

We see downside risk to consensus 2018/19 EPS estimates for M1 and StarHub. SingTel

is our preferred pick as it has the least exposure to Singapore mobile sector. We have cut

our 2017-19E EPS estimates for Singapore telcos by 0-4% as bake in higher subsidies. As

a result, our TPs for M1 and StarHub reduce by ~3% to S$1.50 and ~4% to S$2.25 resp.

We expect TPG to start mobile services in 2H18

with 775 macro sites and 575 IBS with a

likely capex spend of ~S$300mn by 2018E.

At a steady state (2022E), TPG's opex

likely to be at ~51% of M1’s 2016 opex…

…implying EBITDA breakeven at ~17% discount to current

ARPU with 6% mobile and BB subs share

We expect TPG to capture ~6% mobile

and ~5% BB subs share by 2021E

We see downside risk to consensus 2018/19

earnings estimates for M1 and StarHub

2 March 2017


Regional valuation comparison

Figure 9: Asia regional valuation comparison

Note: Data as on 28-Feb-17; Source: Thomson Reuters, Bloomberg, Company data, Credit Suisse estimates

Close Target Mkt cap

Ticker Ccy price Rating price (US$ bn) 17E 18E 17E 18E 17E 18E 17E 18E 1m 6m YTD 1m 6m YTD

Asia

Integrated operators

China Telecom 728 HK HK$ 3.65 O 5.50 38.1 11.0 9.6 3.4 3.1 6.2% 7.8% 3.6% 4.7% -0.5% -2.9% -3.4% 0.4% -6.5% -21.1%

China Unicom 762 HK HK$ 9.44 O 12.85 29.1 29.6 14.2 4.6 4.1 6.4% 9.9% 1.4% 3.5% 1.5% -4.0% 6.7% 2.5% -7.5% -12.8%

Chunghwa 2412 TT NT$ 102.00 N 105.00 25.8 19.1 18.4 8.9 8.6 6.2% 6.4% 5.4% 5.6% 0.5% -4.2% -3.3% 0.8% -10.0% -16.6%

HTHK 215 HK HK$ 2.43 O 2.95 1.5 17.1 15.4 6.5 6.1 8.7% 9.2% 4.4% 4.9% -0.8% -6.5% -11.6% 0.1% -9.9% -27.8%

KT 030200 KS W 30,450.00 O 38,000.00 7.0 8.1 6.9 2.4 2.0 27.1% 28.8% 3.9% 4.9% 0.7% 2.0% 5.4% 1.2% -3.3% -3.5%

PCCW 8 HK HK$ 4.73 N 5.25 4.7 20.2 19.1 9.9 9.3 4.2% 5.7% 6.3% 6.5% 1.3% 3.7% -3.5% 2.2% 0.0% -21.1%

HKT Trust 6823 HK HK$ 10.36 O 11.95 10.1 15.3 14.5 11.0 10.5 6.9% 6.8% 6.2% 6.4% 0.8% 1.8% -5.6% 1.7% -1.9% -22.9%

PLDT TEL PM P 1,460.00 U 1,300.00 6.3 17.4 18.6 7.6 7.6 2.2% 2.3% 3.5% 3.2% 2.1% 12.3% -16.8% 3.1% 6.9% -22.4%

SingTel ST SP S$ 3.94 O 4.60 45.8 16.0 15.4 7.2 6.9 5.6% 6.5% 4.6% 4.8% -0.8% 3.4% 6.2% -0.8% -2.2% -8.0%

SPK SPK NZ NZ$ 3.57 U 3.00 4.7 16.6 16.1 7.5 7.5 6.4% 6.7% 7.0% 7.0% 2.3% 1.4% 2.2% 1.2% -1.4% -7.2%

TM T MK RM 6.16 O 7.20 5.2 26.6 24.8 7.2 6.6 0.1% 1.5% 3.4% 3.6% -0.2% 0.2% -6.8% 0.6% -3.8% -8.1%

Telstra TLS AU A$ 4.64 U 4.60 43.3 14.2 13.4 6.5 6.3 6.4% 6.4% 6.7% 6.7% -4.4% -7.3% -7.3% -2.4% -10.0% -19.2%

Jasmine JAS TB Bt 8.80 U 7.25 2.7 25.9 23.2 12.3 10.1 0.3% 1.6% 2.3% 2.6% 1.1% 15.8% 216.5% 1.5% 12.3% 173.4%

True Corp TRUE TB Bt 6.25 U 2.69 7.1 1023.1 925.7 10.0 11.0 0.0% 4.6% 0.0% 0.0% 1.6% -13.2% -14.6% 1.9% -15.8% -26.2%

Link Net LINK IJ Rp 4,860.00 O 8,300.00 1.1 12.9 10.4 6.4 5.1 6.8% 8.6% 2.3% 3.9% -2.8% 0.6% 30.8% -3.6% -2.9% 16.1%

HKBN 1310 HK HK$ 9.05 O 11.00 1.2 25.1 19.3 11.0 9.8 6.2% 7.0% 4.8% 5.6% 0.0% 3.9% -13.1% 0.0% 0.1% -29.0%

Asia average - integrated 14.9 13.6 5.9 5.7 10.8% 11.4% 3.0% 3.3% -1.0% 3.4% 9.6% 0.1% -0.4% -7.1%

NJA - integrated 17.2 14.4 6.5 6.1 6.4% 7.5% 4.5% 5.1% 0.0% -1.8% 1.0% -0.6% -5.9% -13.5%

Close Target Mkt cap

Ticker Ccy price Rating price (US$ bn) 17E 18E 17E 18E 17E 18E 17E 18E 1m 6m YTD 1m 6m YTD

Asia

Mobile operators

AIS ADVANC TB Bt 167.00 O 218.00 14.2 15.9 15.1 8.3 8.0 3.0% 5.1% 4.4% 4.6% -0.6% 16.8% -2.9% -0.3% 13.3% -16.1%

AXIATA AXIATA MK RM 4.43 N 4.80 9.0 25.7 23.0 5.8 5.4 5.2% 6.8% 1.9% 2.2% -8.7% 4.5% -25.9% -8.0% 0.3% -26.9%

Bharti BHARTI IN INR 365.15 U 295.00 21.9 32.8 27.3 7.0 6.5 3.8% 3.4% 0.9% 1.1% -2.7% 14.8% 13.9% -3.0% 6.0% -5.8%

China Mobile 941 HK HK$ 85.60 O 115.00 225.6 12.5 11.8 3.8 3.4 5.8% 7.3% 4.0% 5.1% -1.6% -0.4% 2.3% -0.6% -4.0% -16.3%

DiGi DiGi MK RM 5.04 N 5.00 8.8 23.5 23.5 14.1 14.3 3.9% 3.9% 4.2% 4.2% -1.0% 1.8% 2.2% -0.2% -2.2% 0.8%

XL EXCL IJ Rp 2,990.00 O 3,950.00 2.4 54.2 32.4 5.2 4.6 2.9% 6.9% 0.6% 2.5% -2.6% 34.7% -22.3% -3.4% 30.0% -31.0%

FarEasTone 4904 TT NT$ 74.00 O 87.00 7.9 20.1 20.2 9.4 9.9 6.9% 6.9% 5.2% 5.3% 0.5% 0.5% 6.8% 0.8% -5.6% -7.9%

Globe GLO PM P 1,828.00 O 2,200.00 4.8 18.1 16.8 7.2 7.1 1.4% 2.3% 5.0% 5.2% 2.1% 30.3% 8.6% 3.1% 24.0% 1.3%

IDEA IDEA IN INR 115.85 U 91.00 6.3 137.8 n.m. 8.1 8.6 -26.9% 3.0% 0.1% 0.0% 6.8% 59.1% 9.9% 6.5% 47.0% -9.1%

Indosat ISAT IJ Rp 7,100.00 O 7,250.00 2.9 18.7 16.4 4.3 4.0 8.0% 9.1% 2.7% 3.7% 4.4% 13.1% 35.2% 3.5% 9.2% 20.0%

LG Uplus 032640 KS W 12,800.00 O 15,000.00 4.9 9.6 9.1 3.3 3.3 17.2% 18.4% 3.2% 3.4% 1.2% 8.9% 20.2% 1.7% 3.3% 10.1%

Maxis MAXIS MK RM 6.31 U 5.60 10.7 26.2 26.4 12.9 12.8 4.5% 4.8% 3.2% 3.2% -2.2% 6.9% 1.8% -1.4% 2.7% 0.4%

M1 M1 SP S$ 2.08 U 1.50 1.4 14.8 19.4 7.9 8.8 4.9% 5.2% 5.4% 4.1% 3.0% 4.5% -18.4% 2.9% -1.1% -29.3%

NTT DoCoMo 9437 JP ¥ 2,667.00 O 3,000.00 88.8 15.2 15.2 6.2 6.2 6.9% 0.0% 3.7% 3.7% -1.2% 1.3% 1.1% 0.1% -2.0% -15.0%

PT Telkom TLKM IJ Rp 3,850.00 O 4,750.00 28.9 16.6 15.4 8.5 7.8 4.5% 5.8% 3.6% 3.9% -0.8% -0.3% 17.4% -1.6% -3.7% 4.2%

Reliance RCOM IN INR 38.90 U 30.00 1.5 15.6 11.1 6.8 6.1 22.3% 25.6% 0.3% 0.5% 12.3% 8.8% -27.7% 11.9% 0.5% -40.2%

SmarTone 315 HK HK$ 10.54 O 15.50 1.5 14.8 14.3 5.9 5.7 9.6% 9.6% 5.7% 5.8% -0.6% -2.6% -17.8% 0.4% -6.1% -32.8%

StarHub STH SP S$ 2.88 U 2.25 3.5 17.8 21.2 9.0 9.9 5.6% 5.2% 5.6% 5.6% 2.1% -0.3% -14.5% 2.0% -5.8% -26.0%

TAC DTAC TB Bt 43.50 O 66.00 2.9 34.9 12.5 4.5 4.9 6.0% 7.3% 1.4% 4.0% 0.0% 30.8% 37.0% 0.3% 26.9% 18.3%

Taiwan Mobile 3045 TT NT$ 108.00 O 128.00 12.0 19.5 19.1 9.9 9.6 5.5% 5.2% 5.3% 5.3% 0.5% 2.4% 4.3% 0.8% -3.8% -10.0%

Asia average - mobile 17.1 14.4 5.4 5.4 6.6% 6.7% 3.7% 4.3% -1.1% 3.3% 3.1% -0.4% -0.9% -12.6%

NJA - mobile 17.8 14.3 5.6 5.3 6.5% 8.2% 3.7% 4.4% 0.0% 3.8% 3.6% -0.5% -0.6% -12.1%

Asia average - telecoms 16.0 14.0 5.7 5.6 8.7% 9.0% 3.4% 3.8% -1.1% 3.3% 6.4% -0.2% 6.4% -9.9%

NJA - telecoms 17.5 14.3 5.9 5.6 6.5% 7.9% 4.0% 4.7% 0.0% 1.7% 2.7% -0.5% 2.7% -12.6%

Notes:

1) Rating: O = Outperform; N = Neutral; U = Underperform; R = Restricted

2) The averages are based on market capitalisation.

3) The PE for non-Asian stocks are based on Credit Suisse adjusted EPS.

4) The financial years of Softbank, KDDI, NTT, NTT DoCoMo, Bharti, Reliance and SingTel are ended in March. For the sake of comparison, FY14 of these companies in this matrix represents FY3/15 of their financial years and etc.

5) PCCW's earnings excludes contribution from Cyber Port.

6) FCF yield = (EBITDA - interest exp. - tax - capex) / mkt cap

Normalised PE EV/EBITDA FCF yield Div yield Absolute Performance Relative Performance

Relative Performance Normalised PE EV/EBITDA FCF yield Div yield Absolute Performance

2 March 2017


TPG likely to spend ~S$500 mn on capex by 2021E Building a mobile network requires interactions amongst various network parameters such

as coverage area, topography of an area, spectrum availability and technology to be

deployed. Being a small city state, Singapore (with an area of 719 sq. Km) being a mostly

low lying area with small range of hill (at the center) is not difficult to cover from a macro

coverage perspective. Additionally, TPG is looking to build a 4G network with a good mix

of low band and high band of spectrum, aiding a cost efficient roll out of the network.

Below we discuss network investments in detail.

TPG has good mix of low band and high band spectrum

Though from the total spectrum quantum perspective incumbents are at an advantage (to

the new entrant), we believe TPG has a good mix of low band (2 x 10MHz of 900MHz) and

high band (40MHz of 2300MHz) spectrum to offer high quality 4G services in Singapore.

Figure 10: Spectrum holdings of Singapore telcos

900MHz1 1800MHz 2100MHz 2300MHz 2600MHz

M1 2 x 5MHz 2 x 20MHz 2 x 19.8MHz - 2 x 20MHz

StarHub 2 x 5MHz 2 x 25MHz 2 x 19.6MHz - 2 x 20MHz

SingTel 2 x 10MHz 2 x 30MHz 2 x 20MHz - 2 x 20MHz

TPG 2 x 10MHz - - 2 x 40MHz -

Note 1: 900MHz spectrum holding is based on our expectation of general spectrum auction; Source: IMDA, Company data, Credit Suisse estimates

Given the superior physical characteristics of 900MHz spectrum, TPG is likely to deploy

the same for macro coverage and 2300MHz for providing capacity. Having two carriers (2

x 5MHz each) of 900MHz provide TPG with a marginal advantage to M1 and StarHub in

providing better macro coverage till M1 and StarHub get access to the 700MHz spectrum

band. We expect SingTel to win the additional one carrier (2 x 5MHz) of 900MHz in the

upcoming spectrum auction. Our analysis suggests that TPG can offer theoretical

download speed of up to 450Mbps using two carrier aggregation (CA), 64 QAM

modulation, and 4x4 MIMO technology. The above download speed can increase further

by deploying higher technologies such as 8x8 MIMO or 256 QAM modulation etc. We note

that category 9, which is the standard most premium handsets are currently deploying, can

support maximum download speed of 450Mbps while the future categories (11 and 12)

can support maximum download speeds of 600Mbps.

Figure 11: Theoretical peak download speed for TPG (Mbps)

Without carrier aggregation

Scenario 1: CC 2300 (20MHz)

Assuming 64QAM and 2 x 2 MIMO 112 Mbps


Scenario 2: CC 900 (2 x 10MHz)



With carrier aggregation

Scenario 3: CA_40C (40MHz of 2300MHz)



Scenario 4: CA_8A-40A (2 x 10MHz of 900MHz and 20MHz of 2300MHz) supported under Release - 12



Scenario 5: CA_8A-40C (2 x 10MHz of 900MHz and 40MHz of 2300MHz) not supported yet but can be in future releases



Source: 3GPP.org, Credit Suisse estimates

Being a small city state, Singapore is not hard

to cover from macro coverage perspective

TPG can offer peak download speed of up to 450Mbps using two

carrier aggregation

2 March 2017


Additionally, our analysis suggests that TPG’s current spectrum portfolio should be able to

support market share of ~28% (at theoretical speed of 450Mbps) assuming average data

usage per subs of 7GB which is almost twice of current data usage.

Figure 12: TPG's current spectrum portfolio should be able support subs

market share of over 25%


TPG would need 700-900 macro sites on 900MHz for good outdoor coverage

As highlighted above, we expect TPG to deploy 900MHz spectrum band for macro

coverage given the superior coverage characteristics. The below table shows the

coverage radius and area for various spectrum bands.

Figure 13: Uplink coverage comparison

700MHz 800MHz 1800MHz 2100MHz 2300MHz 2600MHz

Uplink cell range (Km)

Dense urban 0.70 0.63 0.38 0.36 0.30 0.27

Urban 1.21 1.09 0.64 0.61 0.51 0.45

Semi urban 3.37 3.04 1.67 1.58 1.31 1.16

Rural 8.48 7.65 4.40 4.17 3.44 3.04

Coverage area (Km square)

Dense urban 0.95 0.78 0.27 0.25 0.17 0.14

Urban 2.84 2.33 0.80 0.72 0.50 0.40

Semi urban 22.16 18.06 5.42 4.87 3.35 2.63

Rural 140.37 114.22 37.71 33.84 23.08 18.06

Source: ZTE White paper, June 2013; GSMA

Assuming Singapore to be densely urban area, for the entire city state (which in our view

is a stringent condition), we get a coverage range of 0.6km (implying coverage area of 0.8

sq. Km) for the 900MHz spectrum band. Given Singapore's area is 719 sq. Km, 900 macro

sites are sufficient for coverage of Singapore using this stringent coverage condition. Our

checks with various industry participants suggest that 700-800 sites are good enough to

start services in Singapore. In our model, we expect TPG to start the mobile services in 2H

2018 with 775 macro sites and then to gradually ramp-up to ~1,000 sites by 2021E..

Assuming the cost per site of US$60,000 (including equipment, software licenses,

installation etc.), we estimate total capex for rolling out 1,000 macro sites to be S$85 mn

(out of which S$74 mn will be spent over the next three, till 2019E).

0

50

100

150

200

250

0% 3% 5% 8% 10% 13% 15% 18% 20% 23% 25% 28% 30% 33% 35% 38% 40%

Peak hour network traffic (Mbps)


(Mbps)

(Subs market share, %)


We estimate TPG to spend ~S$85 mn on

macro coverage

2 March 2017


Figure 14: Coverage timelines

Coverage requirements Timeline

Nationwide outdoor service coverage By 30 Sep 2018 (18 months after the commencement of spectrum rights)

Road tunnels and in-building service coverage By 30 Sep 2019 (30 months after the commencement of spectrum rights)

Underground MRT stations/ lines service coverage By 30 Sep 2021 (54 months after the commencement of spectrum rights)

Source: IMDA

IBS capex is likely to be S$350 mn by 2021E

Besides macro coverage, in-building coverage presents one of the key challenges for the

new entrant given significant amount of data usage happens indoor. Though having a

sizeable quantum of low band spectrum (900MHz) aids in providing good in building

coverage (due to better penetration), TPG would need to have basic building coverage to

provide quality service. Based on our checks, currently incumbents have in-building

solutions (IBS) in around 1,000 buildings. We expect TPG to start mobile services in 2H

2018 with coverage of 575 buildings which is likely to expand to 930 buildings by 2021E.

We expect TPG to use 2300MHz spectrum for providing in-building coverage given the

capacity it can generate. The cost of in-building coverage varies significantly with the size

of the building. For example, the cost of doing in-building coverage for a very large

building (such as an airport) can be as high as S$15-25 mn while the same for a small

building can be S$50,000. That said, there are very few large buildings requiring that

quantum of investment. For our analysis, we have assumed 20% of the total IBS installed

are in the large buildings with average cost of installation being S$700,000 while the

remaining 80% are in the small and medium buildings with average cost of installation

S$275,000. Therefore, we expect the total cost of installation for 930 IBS by 2021E to be

S$335 mn.

Total capex spent likely to be ~S$500mn by 2021E

Besides macro and in building coverage, TPG would need to invest on building core

network, billing solutions, IT systems, technology upgrade and other maintenance capex.

We expect cumulative investment in other capex to be S$73 mn by 2021E. Therefore, we

estimate TPG to invest ~S$500 mn on capex over the next five years (till 2021E). We note

that TPG has guided for capex of S$200-300 mn by September 2018. Our capex forecast

till 2018E is S$295 mn, at the higher end of the management guidance. Below figure

provides more detailed break-up of capex over the next 5 years.

Figure 15: Total capex break-up

(S$ mn) 2017E 2018E 2019E 2020E 2021E

Total macro capex 35 33 7 6 5

Total IBS capex 72 135 63 36 29

Other capex 5 15 15 18 20

Total capex 112 183 85 60 54


We expect TPG to start mobile services with coverage of 575 IBS

2 March 2017


Pricing likely to fall by 15-25% over the next three years

TPG can operate at ~50% of M1's 2016 operating cost

at a steady state…

Telecom is largely a fixed cost business requiring upfront investments in the form of capital

expenditure and operating expenses. In the previous section, we looked at the various

capital expenditures and in this section we detail various operating expenses. We met with

various industry participants (telecom operators, equipment vendors, and consultants) and

based on their inputs we have classified operating expenses in to followings heads –

− Network expenses,

− Transmission/traffic expenses,

− Sales and marketing expenses, and

− General and administrative expenses.

Below, we detail these operating expenses

■ Network expenses: These expenses relate to running of mobile network and include

lease rentals, utility costs, network operating costs, repair and maintenance etc.

− Rental and utility expenses: The rental cost primarily relates to leasing of space to

place macro sites on buildings. Rentals per site vary with the location of the

buildings. For example, rentals in central business district (CBD) can average

around S$4,500 per month while in remote areas it can be less than S$1,000 per

month. We have assumed an average lease rental of S$2,000 per month. We

expect TPG to start services with 775 macro sites in 2018 and to ramp up the same

to around 1,000 over the next five years. For utility and other expenses, we have

assumed an average monthly cost of S$750 per site for the macro and in building

solutions. We have also factored in average annual inflation of 1.5% in our

assumptions, leading to total rental and utility cost of S$43 mn by 2022E.

Here, we would like to highlight the importance of COPIF 2013, a regulation by

IMDA to facilitate the deployment of mobile equipment in buildings. Under COPIF,

the building owners/developers are required to provide a minimum set of mobile

deployment space (MDS) at their own cost. The COPIF standard was recently

revised to increase the MDS and IMDA had also proposed that the MDS

requirements would be applicable to both new and existing developments. Hence,

there is a strong possibility of rentals cost coming down significantly over the next

five years. Taking a conservative approach, we have not factored the same in our

forecasts. If the average lease rental cost declines by 50% (to S$1,000 per month),

then our 2022E total rental and utility cost can reduce by S$11 mn.

− Network operating costs: Network operating costs pertains to management and

operation of the access and core network. In order to estimate network operating

cost, we have assumed (1) initial employee strength to be 50 which gradually

ramps up to 75 by 2022, and (2) an average employee cost of S$8,500/month with

annual cost inflation of 2%. Additionally, we have factored in network administrative

cost at 25% of the staff cost. Total network operating cost is estimated to reach

S$22 mn by 2022E. We note that TPG can also leverage its Australian office to

save some of these costs.

Based on inputs from industry participants,

we list operating expenses in to…

… 1) network expenses – relating to running of

mobile network…

… we expect it to reach S$65 mn by 2022E

2 March 2017


■ Transmission or traffic expenses: These expenses relate to carrying of mobile traffic

on an operator’s network.

− Backhaul: This cost pertains to connecting all the sites (macro and in building

solutions) to one of the operator’s exchanges with fibre. However, the amount of

bandwidth needed on each site depends on the traffic on each site. We had

assumed initially that 25% of the sites are in high traffic areas and would need

dedicated lease line to carry traffic while the remaining sites can be connected on a

shared basis. We expect percentage of dedicated sites to increase to 35% by 2022.

We estimate the cost of dedicated site to be S$2,300 per month and that of a

shared site to be S$185 (reflecting the cost of NBAP from Netlink trust). We have

also factored in inflation of 1.5% in our costs.

− Core connectivity: In a mobile network topology, the cell sites are usually connected

to small exchanges which in turn are connected to the main network centers. Also,

the redundancies are created in the connectivity so that network performance is

stable in case of disruptions in one of the connecting fibre. We estimate the core

connectivity cost to reach S$11 mn by 2022E.

− International bandwidth: International bandwidth can be a bottleneck in providing

good internet experience in case of insufficient bandwidth. We have estimated

international bandwidth requirement using the peak hour calculation factoring in

average monthly data usage of 5.5GB in 2018E (reaching 7GB by 2022E). We

have also assumed the current cost of 1Gbps international bandwidth to be

US$2,500 which is expected to decline at an annual rate of 2% over the next five

years.

− Other traffic expenses: We have assumed other traffic expenses relating to

interconnect cost etc. to reach to S$2 mn by 2022E.

■ Sales and marketing expenses: These expenses relate to go-to-market strategy and

include physical store cost, commissions and advertising expenses.

− Sales channel costs: This includes costs related to the running of physical stores.

We expect TPG to start services in 2018 with four physical stores each having 12

employees and estimate the number of stores to increase to eight by 2022. We

forecast the sales channel cost to reach S$8 mn by 2022E. We would highlight that

the sales channel cost can reduce substantially if the company decides to use

online sales as the go-to-market strategy with very little physical presence.

− Commissions: We have assumed monthly churn rate in the initial years to be 1.5-

2.0% for the postpaid customers higher than the current churn rate of 1.0%. We

expect the churn rate to settle down at 1.3% in the longer term. We forecast

postpaid commissions to start at S$40/sub in 2018 and to decline to S$32/sub by

2022E.

− Advertising expenses: M1 spent S$22 mn in advertising costs in 2016. We expect

TPG’s advertising spend to be S$20 mn in the initial years which is likely to decline

to S$18 mn by 2022E.

■ General and administrative expenses: This section includes costs related to

corporate office, license fees, managed services etc.

− Employee cost: We expect TPG to have 150 employees (excluding employees in

network management and sales channel) by 2022E with average monthly salary of

~S$9,400. We would again highlight that the company can leverage its Australia

office to reduce this cost item.

− Managed services: This cost item relates to call center, IT services and other

managed services (excluding network services). We estimate managed services to

reach S$15 mn by 2022E.

…2) Traffic expenses – relates to carrying of

mobile traffic…

… we expect it to reach ~S$50 mn by 2022E

…3) sales & marketing – relates to go-to-market strategy…


…3) G&A – relates to corporate office and other admin costs…

2 March 2017


− Other costs: This line item factors in costs pertaining to license fees, provision for

bad debt, corporate office expense etc. We estimate other G&A cost to reach

~S$10 mn by 2022E.

Figure 16: TPG operating expenses forecasts

(S$ mn) 2017E 2018E 2019E 2020E 2021E 2022E

Network expenses 5 34 51 57 61 65

Transmission expenses 0 18 26 35 44 51

Sales and marketing 0 19 30 33 32 29

General and administrative 10 20 28 34 38 41

Total operating expenses 15 91 135 159 175 185


As detailed above, at a steady state the operating expenses for TPG at our base case is

likely to be around S$185 mn in 2022E, five years after the first commercial launch of

services in 2018. Assuming a 10% variation in the operating costs, we believe that the

total operating costs can vary by ~S$20 mn on the higher or lower side. However, as

highlighted above, we see more downside risks to our base operating costs assumptions

as we have kept some buffer in many cost items such as network rental expenses,

international bandwidth, sales and marketing, etc given our negative view on the sector.

Hence, TPG's operating costs can be closer to S$165 mn in 2022E at our lower cost

assumptions. On the higher side, the operating cost can be around S$205 mn.

We can also look at M1’s operating costs to sanity check our assumptions. M1 had an

operating cost (excluding handset and residential broadband business) of S$365 mn in

2016. Our base assumptions suggest that TPG’s operating cost in 2022E is likely to be

S$185 mn, representing ~51% of M1’s current operating cost while at the lower cost

structure the percentage can be ~45% and on the higher side it can be 55%. The main

difference in M1's and TPG's operating cost structure comes from the employee cost. M1

had an employee cost of S$115 mn in 2016 while we estimate in our base case TPG's

employee cost to be ~S$30 mn. The other key differences come from network costs and

traffic expenses. We think our assumptions are reasonable given that M1 has lot of legacy

costs, its operating costs also include investment in to enterprise fixed network and TPG

can also drive significant cost savings from its Australia business (especially in the

employee cost). Hence, we believe the range of TPG's operating expenses can be 45-

55% of M1's current operating cost.

…implying EBITDA breakeven at ~17% discount to

current service ARPU with 6.0% subs share

With TPG emerging as the fourth mobile operator in Singapore, one of the key questions

in investors’ mind is – At what ARPU levels TPG can break even?

We have done sensitivity analysis using the 2022E operating cost structure to find solution

to the question. We have looked at two scenarios – mobile only services and mobile and

fixed broadband services – to arrive at the answer.

Our sensitivity analysis suggests that TPG would turn EBITDA breakeven at a discount of

~11% to the current service ARPU of S$33 with a mobile subscriber market share of 6.0%.

However, the same would increase to ~17% (at 6.0% mobile market share) if the company

also gets 6% market share in the fixed broadband market. The 17% discount can come

down further to 25% if TPG can operate at 45% of M1's cost structure. We would highlight

that TPG has guided to turn EBITDA breakeven with 5-6% subs market share. Our

forecasts appear to be in line with management guidance.


Our base case cost assumptions

represents ~51% of M1’s 2016 operating

costs by 2022E…

…and we see more downside risks to our

cost assumptions

At what ARPU levels TPG can break even?...

…EBITDA at ~17% discount to current

service ARPU with 6% mobile and BB subs

share…

2 March 2017


Figure 17: EBITDA sensitivity analysis with mobile

only services

Figure 18: EBITDA sensitivity analysis with mobile

and fixed broadband services


While for return on capital employed (RoCE), TPG would turn RoCE breakeven at a

discount of 5% to the current service ARPU with a mobile subscriber market share of 7.5%

and the same would increase to 9% with the 6% market share in the fixed broadband

segment as well. We note that for our RoCE assumptions we have assumed a total

investment of S$1.0 bn, out of which S$500 mn will be the capital expenditure, S$105 mn

spectrum cost and the remaining investments will be to fund the operating losses.

Figure 19: RoCE sensitivity analysis with mobile

only services

Figure 20: RoCE sensitivity analysis with mobile

and fixed broadband services


What about handset bundled plans?

In our operating costs, we have not factored in handset costs as our focus is on

standalone plans (SIM only plans) given they are a better reflection of the operating costs

and service revenues. Bundled plan comparison gets complicated due to variation in the

accounting treatment of handset component of the revenue. We also think that operators

usually finance the handset purchase rather than subsidise the same is reflected in the

substantial difference in the pricing of bundled plans and SIM only plans. In order to

compare with the prevalent sector ARPU, we can assume the handset component in the

service ARPU to be S$18 per postpaid subscriber. Below table provides sensitivity

analysis factoring in the handset bundled plans and TPG's presence in both the mobile

and fixed broadband markets (having 6% share in fixed broadband segment).

3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%

-45.0% (128) (99) (70) (41) (12) 17 45

-37.5% (120) (87) (54) (21) 11 44 77

-30.0% (112) (75) (38) (2) 35 72 108

-22.5% (104) (63) (23) 18 58 99 140

-15.0% (96) (52) (7) 38 82 127 171

-7.5% (88) (40) 9 57 106 154 203

0.0% (80) (28) 24 77 129 182 234


% d

isco

un

t to

cu

rre

nt

se

rvic

e A

RP

U (

S$33)

3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%

-45.0% (115) (86) (57) (29) 0 29 58

-37.5% (107) (74) (42) (9) 24 57 89

-30.0% (99) (63) (26) 11 47 84 121

-22.5% (91) (51) (10) 30 71 112 152

-15.0% (84) (39) 6 50 95 139 184

-7.5% (76) (27) 21 70 118 167 215

0.0% (68) (15) 37 89 142 194 247


% d

isco

un

t to

cu

rre

nt

se

rvic

e

AR

PU

(S

$33)

3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%

-45.0% -15.7% -13.3% -10.9% -8.5% -6.1% -3.7% -1.3%

-37.5% -15.0% -12.3% -9.6% -6.9% -4.2% -1.5% 1.3%

-30.0% -14.4% -11.3% -8.3% -5.3% -2.2% 0.8% 3.9%

-22.5% -13.7% -10.4% -7.0% -3.6% -0.3% 3.1% 6.5%

-15.0% -13.1% -9.4% -5.7% -2.0% 1.7% 5.4% 9.1%

-7.5% -12.4% -8.4% -4.4% -0.4% 3.7% 7.7% 11.7%

0.0% -11.8% -7.4% -3.1% 1.3% 5.6% 10.0% 14.3%

% d

isco

un

t to

cu

rre

nt

se

rvic

e A

RP

U (

S$33)


3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%

-45.0% -14.7% -12.3% -9.9% -7.5% -5.1% -2.7% -0.3%

-37.5% -14.0% -11.3% -8.6% -5.8% -3.1% -0.4% 2.3%

-30.0% -13.4% -10.3% -7.3% -4.2% -1.2% 1.9% 4.9%

-22.5% -12.7% -9.3% -6.0% -2.6% 0.8% 4.2% 7.5%

-15.0% -12.0% -8.3% -4.7% -1.0% 2.7% 6.4% 10.1%

-7.5% -11.4% -7.4% -3.3% 0.7% 4.7% 8.7% 12.7%

0.0% -10.7% -6.4% -2.0% 2.3% 6.7% 11.0% 15.4%

% d

isco

un

t to

cu

rre

nt

se

rvic

e A

RP

U (

S$33)


…RoCE at ~9% disc. to current service ARPU with 7.5% mobile and 6% BB subs share…

2 March 2017


Figure 21: EBITDA sensitivity analysis with handset

bundled plans

Figure 22: RoCE sensitivity analysis with handset

bundled plans


3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%

-45.0% (134) (114) (95) (75) (55) (36) (16)

-37.5% (124) (99) (75) (50) (25) (1) 24

-30.0% (114) (84) (55) (25) 5 34 64

-22.5% (104) (69) (34) 0 35 69 104

-15.0% (94) (54) (14) 25 65 104 144

-7.5% (84) (39) 6 50 95 139 184

0.0% (74) (24) 26 75 125 174 224


% d

isco

un

t to

cu

rre

nt

AR

PU

(S

$42)

3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0%

-45.0% -16.2% -14.6% -13.0% -11.3% -9.7% -8.1% -6.5%

-37.5% -15.4% -13.3% -11.3% -9.3% -7.2% -5.2% -3.1%

-30.0% -14.5% -12.1% -9.6% -7.2% -4.7% -2.3% 0.2%

-22.5% -13.7% -10.8% -8.0% -5.1% -2.2% 0.6% 3.5%

-15.0% -12.9% -9.6% -6.3% -3.0% 0.3% 3.5% 6.8%

-7.5% -12.0% -8.3% -4.7% -1.0% 2.7% 6.4% 10.1%

0.0% -11.2% -7.1% -3.0% 1.1% 5.2% 9.3% 13.5%


% d

isco

un

t to

cu

rre

nt

AR

PU

(S

$42)

2 March 2017


Competition to intensify in mobile and broadband markets The size of the Singapore telecom market was S$9.8 bn as of 2016; the mobile sector

accounted for S$4.4 bn of revenues, enterprise sector for S$4.3bn, fixed broadband sector

for S$0.7b n and fixed voice for S$0.4 bn. We expect TPG to target mobile and fixed

broadband market in the initial years as the enterprise segment will be hard to break into

given the investment needed in building the network and developing capabilities.

Additionally, SingTel has c.90% market share of the enterprise market and it will be

difficult for TPG, initially, to get a foothold in the market.

Figure 23: Break-up of Singapore telecom sector revenues (S$9.8bn as of 2016)

Source: Company data, Credit Suisse estimates

Mobile: TPG likely to get ~6% subs share by 2021E

from incumbents

The growth potential in the Singapore mobile market appears limited with the mobile

penetration at ~150% as of 2016. We expect mobile penetration to largely remain at that

level over the next five years. Hence, a large portion of market share gain for TPG is likely

to come from incumbent operators.

Go-to-market strategy: TPG may only charge for data while offering other services for free

TPG in Australia is known to be a disruptor as the company provides the lowest price

plans in the broadband market. TPG has consistently had the lowest price points in the

market, offering a basic unlimited broadband service with limited add on services. TPG

has an extremely efficient operating model and lean cost structure, which has enabled it to

offer the lowest prices, whilst reporting some of the highest margins of its peers

(broadband EBITDA margins of ~40% for the core TPG brand). We believe the company

is likely to carry the similar approach in Singapore to gain market share.

Though the Singapore mobile has seen some price actions (the launch of SIM only plans

and data add on plans) over the last 12-18 months, we think price competition is likely to

intensity further over the next three years with TPG looking to gain market share. Further,

Singapore mobile operators continue to draw revenue from voice overage (as there are no

unlimited voice plans) and caller id services. We believe, as part of its go-to-market

strategy, TPG may only charge for data services while offering free voice and other

services. Additionally, unlike Hong Kong, Singapore does not have a vibrant low-end

Enterprise 44%

Mobile44%

Fixed BB8%

Fixed voice4%

We expect TPG to target mobile and fixed

broadband market in the initial years

Large portion of market share gain for TPG is

likely to come from incumbents

2 March 2017


segment which TPG can target as well, increasing downgrading potential. We expect TPG

to capture ~6% subscriber market share over the next five years and pricing is likely to be

main lever to gain market share.

Singapore mobile sector’s service revenue declined by c.3% in 2016 as the sector has

been impacted by the decline in roaming, IDD and excess data revenues. We expect the

decline in mobile service revenue to continue over the next three-years (at a CAGR of

~4% till 2019E) due to (1) ineffective data monetisation resulting from the launch of

aggressive data add on plans in 2017, (2) further price cuts in 2018 with the imminent

launch of mobile services by TPG, and (3) continued cannibalisation of roaming and voice

revenues by OTT services.

Figure 24: Singapore mobile market share forecasts

2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

Cellular subs ('000)

SingTel 4,102 4,088 4,102 4,094 4,087 4,083 4,083 4,089

StarHub 2,187 2,307 2,336 2,316 2,291 2,267 2,245 2,228

M1 1,928 2,019 2,044 2,018 1,981 1,944 1,912 1,885

TPG - - - 70 205 350 495 620

Total cellular subs 8,217 8,414 8,482 8,498 8,564 8,644 8,735 8,822

Mobile penetration (%) 147.6% 148.8% 148.9% 147.9% 148.0% 148.2% 148.7% 149.1%

Cellular subs market share (%)

SingTel 49.9% 48.6% 48.4% 48.2% 47.7% 47.2% 46.7% 46.4%

StarHub 26.6% 27.4% 27.5% 27.3% 26.8% 26.2% 25.7% 25.3%

M1 23.5% 24.0% 24.1% 23.7% 23.1% 22.5% 21.9% 21.4%

TPG - - - 0.8% 2.4% 4.0% 5.7% 7.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cellular revenue (S$ m)

SingTel 2,392 2,334 2,227 2,123 2,069 2,057 2,067 2,089

StarHub 1,240 1,215 1,192 1,120 1,077 1,057 1,051 1,053

M1 842 815 790 743 711 690 682 680

TPG - - - 11 45 95 150 210

Total cellular revenue 4,474 4,364 4,209 3,997 3,901 3,900 3,950 4,033

- % change YoY 0.0% -2.5% -3.5% -5.0% -2.4% 0.0% 1.3% 2.1%

Cellular revenue market share (%)

SingTel 53.5% 53.5% 52.9% 53.1% 53.0% 52.8% 52.3% 51.8%

StarHub 27.7% 27.8% 28.3% 28.0% 27.6% 27.1% 26.6% 26.1%

M1 18.8% 18.7% 18.8% 18.6% 18.2% 17.7% 17.3% 16.9%

TPG - - - 0.3% 1.1% 2.4% 3.8% 5.2%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IMDA, Company data, Credit Suisse estimates

Fixed broadband: Competition in the segment to also

revive with the potential entry of TPG

We expect TPG to launch broadband services in Singapore as it would help the company

to bundle mobile and broadband services and hence, compete more effectively in the

mobile market. Given TPG does not need to build infrastructure for residential broadband

(as it owned by NGBN), the company can launch broadband services earlier than mobile

services in order to establish a brand in the market.

However, with fixed broadband penetration at c.104% as of 2016E, we see limited growth

potential in the fixed broadband segment. We expect fixed broadband penetration to

improve marginally to c.105% over the next five years (until 2021E). Hence, we forecast

fixed broadband subs to witness a five-year CAGR of 2% until 2021E, largely mirroring the

growth in Singapore residential households.

We expect mobile sector service revenue

to decline at a three year CAGR of ~4%

2 March 2017


Residential broadband market is dominated by SingTel (46%) and StarHub (36%) with

~83% combined subscriber share as of 2016E. The new entrants (M1, MyRepublic, etc.)

together have captured ~17% of overall Singapore fixed broadband subscriber market

share by 2016E, at the expense of both STH and SingTel. We expect TPG to launch fixed

broadband services in 1H 2018 and capture ~5% market share by 2021E.

After witnessing heightened competition from 2011-13, the competitive dynamics in the

fixed broadband sector largely stabilised during 2015 and 2016 with no major changes in

prices. However, we expect the competition in the broadband sector to resume with the

potential entry of TPG in the sector. We expect sector’s ARPU to decline at a CAGR of

1.5% over the next three years. In terms of revenue market share, we expect SingTel and

StarHub to lose ~7% revenue market share to new players (including M1) over the next

five years.

Figure 25: Singapore fixed broadband market share forecasts

2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

Fixed broadband subs ('000)

SingTel 597 605 605 603 600 599 601 603

StarHub 476 473 470 465 461 459 458 458

M1 128 160 188 212 231 247 259 269

TPG - - - 6 23 44 68 89

Others 49 66 74 79 80 76 72 72

Total fixed broadband subs 1,250 1,304 1,337 1,365 1,394 1,424 1,457 1,491

- Fixed broadband penetration (%) 102.0% 104.1% 104.6% 104.6% 104.9% 105.3% 105.9% 106.8%

Fixed broadband subs market share (%)

SingTel 47.7% 46.4% 45.3% 44.2% 43.0% 42.1% 41.2% 40.5%

StarHub 38.1% 36.3% 35.2% 34.1% 33.1% 32.2% 31.4% 30.7%

M1 10.2% 12.3% 14.1% 15.5% 16.6% 17.3% 17.8% 18.0%

TPG 0.0% 0.0% 0.0% 0.5% 1.7% 3.1% 4.7% 6.0%

Others 3.9% 5.0% 5.5% 5.8% 5.7% 5.3% 4.9% 4.8%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Fixed broadband revenue (S$ m)

SingTel 410 422 422 413 407 402 398 395

StarHub 200 217 220 218 217 215 213 213

M1 65 78 90 99 105 111 116 121

TPG - - - 1 6 14 24 33

Others 22 30 34 36 36 34 32 31

Total fixed BB revenue 696 746 765 767 770 776 783 794

- % change YoY 5.1% 7.2% 2.5% 0.2% 0.4% 0.7% 1.0% 1.3%

Fixed broadband revenue market share (%)

SingTel 58.8% 56.5% 55.1% 53.9% 52.8% 51.8% 50.8% 49.8%

StarHub 28.8% 29.0% 28.7% 28.5% 28.1% 27.7% 27.2% 26.8%

M1 9.3% 10.4% 11.7% 12.9% 13.6% 14.3% 14.8% 15.2%

TPG 0.0% 0.0% 0.0% 0.2% 0.8% 1.8% 3.0% 4.2%

Others 3.1% 4.0% 4.5% 4.6% 4.6% 4.4% 4.1% 3.9%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IMDA, Company data, Credit Suisse estimates

We expect TPG to launch fixed broadband services in 1H 2018 and

capture ~5% market share by 2021E

2 March 2017


Remain underweight on M1 and StarHub M1's and StarHub's stock prices not baking in increasing competitive dynamics

Given mobile is a scale business, the first objective of TPG would be to gain subscriber

market share in order to turn EBITDA breakeven before looking at return ratios. And

pricing is one of the key levers (in any market) to gain subscribers, in our view. The above

strategy has played out in many markets with India being the most recent one. That said,

we do not expect pricing in Singapore to be as irrational as in India given the different

market dynamics. We expect the competitive intensity to worsen further in the Singapore

mobile sector with the imminent launch of mobile services by TPG in 2018.

Additionally, we think handset subsidies will also be the other key tool deployed by telcos

to gain or defend market share. We think handset subsidies are likely to increase in the

sector over the next 12-18 months as operators look to lock in customers before TPG

launches services. StarHub’s 2017E EBITDA margin guidance of 26-28% (vs 31%

margins in 2016) partially bakes in higher handset subsidies, in our view. Besides the

mobile market, we expect competitive dynamics to worsen in the broadband market over

the next 12-18 with the likely entry of TPG.

What about M&A? possible but sector needs to witness the pain first

While we expect Singapore mobile sector to be a three-player market in the long term

(three years and beyond), we do not think that the sector is likely to witness consolidation

in the next 3-5 years as the regulator would like to see TPG launch its own network.

Hence, the sector needs to pass through a heightened competitive phase before we can

witness consolidation.

However, despite M1's and StarHub's share prices correcting by ~22% and ~21%

respectively since the announcement (1 Sep'16) of new entrant in Singapore mobile

sector, we believe that the current stock prices are not fully baking in the increasing

competitive dynamics. Hence, we reiterate our UNDERPERFORM stance on M1 and

StarHub. SingTel is our preferred pick as it has the least exposure to Singapore mobile

sector.

While we have been factoring in 15-20% decline in service ARPU over the next three

years (by 2019E), we have further trimmed our 2017-19 EPS estimates for M1 and

StarHub by 0-4% as we factor in higher subsidies. As a result, our target prices for M1 and

StarHub reduces by 3.2% to S$1.50 (from S$1.55) and 4.3% to S$2.25 (from S$2.35)

respectively. The impact on SingTel's earnings and target price is negligible.

Figure 26: Singapore Telcos changes in estimates

Rating Target Price % Year % change in revenue % change in EBITDA % change in earnings % change in dividends

New Previous New Previous chng T T+1 T+2 T+3 T+1 T+2 T+3 T+1 T+2 T+3 T+1 T+2 T+3

SingTel O O 4.60 4.60 0.0% 03/16 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -0.7% 0.0% 0.0% 0.0% 0.0% 0.0%

StarHub U U 2.25 2.35 -4.3% 12/16 -0.4% -0.3% -0.2% -0.4% -0.8% -1.7% -0.7% -1.7% -3.6% 0.0% 0.0% 0.0%

M1 Ltd U U 1.50 1.55 -3.2% 12/16 -0.1% -0.2% -1.2% -0.2% -0.7% -2.2% -0.4% -1.2% -3.6% -0.4% -1.2% -3.6%


We see downside to consensus estimates

We see significant downside risk to consensus 2018 and 2019 earnings estimates for M1

and StarHub as we do not think consensus is fully building in competitive dynamics for the

Singapore mobile sector.

We think handset subsidies are likely to increase over the next

12-18 months

We have trimmed our 2017-19E EPS

estimates for M1 and Singapore as we factor

in higher subsidies

2 March 2017


Figure 27: M1 – CS vs consensus estimates

(S$ mn, Y/E December) 2017E 2018E 2019E

Revenue - CS 1,081 1,067 1,050

Revenue - Consensus 1,048 1,010 994

- % difference 3.1% 5.6% 5.6%

EBITDA - CS 300 270 258

EBITDA - Consensus 312 298 280

- % difference -4.0% -9.2% -7.8%

PAT - CS 130 99 84

PAT - Consensus 142 131 112

- % difference -8.2% -24.9% -25.0%

Dividend - CS 11.22 8.48 7.25

Dividend - Consensus 12.30 10.90 9.10

- % difference -8.8% -22.2% -20.3%

Source: IBES, Credit Suisse estimates

Figure 28: StarHub – CS vs consensus estimates

(S$ mn, Y/E December) 2017E 2018E 2019E

Revenue - CS 2,391 2,325 2,286

Revenue - Consensus 2,395 2,366 2,354

- % difference -0.2% -1.7% -2.9%

EBITDA - CS 630 579 558

EBITDA - Consensus 635 628 629

- % difference -0.8% -7.8% -11.2%

PAT - CS 277 230 211

PAT - Consensus 284 276 264

- % difference -2.3% -16.6% -20.3%

Dividend - CS 16.00 16.00 16.00


- % difference -0.6% 0.0% 1.3%


Figure 29: SingTel – CS vs consensus estimates

(S$ mn, Y/E March) FY17E FY18E FY18E

Revenue - CS 16,463 16,935 17,346

Revenue - Consensus 16,572 17,009 17,357

- % difference -0.7% -0.4% -0.1%

EBITDA - CS 4,958 5,075 5,141

EBITDA - Consensus 5,467 5,623 5,704

- % difference -9.3% -9.7% -9.9%

Net profit - CS 3,766 4,014 4,176

Net profit - Consensus 3,919 4,185 4,375

- % difference -3.9% -4.1% -4.6%

Dividend - CS 17.8 18.2 18.9


- % difference 0.5% -1.7% -3.5%


We see significant downside risk to

consensus 2018 and 2019 EPS estimates for

M1 and StarHub

2 March 2017


Singapore telcos valuation not compelling from regional perspective

Additionally, the M1's and StarHub's valuations are not attractive as they are offering one

of the lowest dividend yield spread compared to regional peers and also historically.

Figure 30: Asian telecoms dividend yield spread

Note 1: Yield spread calculated as 12M forward dividend yield minus respective 10-year gov't bond yield; Note 2: Historical mean excludes the Global Financial crisis period. Note 3: Prices as of 28 Feb 2017; Source: Bloomberg, Reuters, Company data, Credit Suisse estimates

Stock views

■ M1 (UNDERPERFORM, TP S$1.50): M1 remains the most vulnerable to the entry of

the fourth mobile operator in Singapore, given 90% of its service revenue comes from

the mobile segment. M1’s 2016 result performance reflects the same as the

competitive intensity rose in 2016 with incumbents looking to pre-empt the entry of new

operator. We expect pricing in the mobile sector to decline further over the next 2-3

years as TPG launches services in 2H 2018. As a result, we expect M1 earnings and

dividend to decline over the next three years. Our new target price of S$1.50 (from

S$1.55) is DCF-based wherein we have assumed a WACC of 7.2% and terminal

growth of 0%. Our target price implies a 2017E/18E of EV/EBITDA of 6.0x/6.7x and

dividend yield of 7.4%/5.6%.

■ StarHub (UNDERPERFORM, TP S$2.25): StarHub is also impacted by the rising

competition in the mobile sector as ~55% of its service revenue comes from the mobile

market. However, compared to M1, StarHub is better placed given its better bundling

proposition and its much stronger footing in fixed-network services. That said, we think

StarHub’s bundling proposition is likely to lose sheen in the medium to longer term with

the emergence of IP TV boxes and OTT services. StarHub has cut its 2017 dividend

guidance to S¢16/sh (from S¢20/sh), reflecting the challenging medium-term outlook.

Our target price of S$2.25 (from S$2.35) is based on SOTP. In our SOTP valuation, we

value the cellular, fixed line, and pay TV/broadband businesses separately using DCF

methodology. We have assumed a WACC of 7.2% and terminal growth of 0% for our

DCF. Our target price implies a 2017E/18E of EV/EBITDA of 7.3x/7.9x and dividend

yield of 7.1%/7.1%.

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

Sin

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M1

Sta

rHub

HK

BN

HT

HK

CH

T

Sm

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FE

T

TW

M

HK

T

PC

CW

+/- 1 SD Hist average Current

M1 and StarHub are offering one of the

lowest dividend yield spread compared to

regional peers

2 March 2017


■ SingTel (OUTPERFORM, TP S$4.60): SingTel is our preferred pick in the Singapore

telecom sector as we have a positive view on most of the company's businesses

except for Bharti Airtel (India business). We believe the stock offers a unique

combination of yield and growth (coming from international associates). Further, the

company is least exposed to the potentially rising competitive scenario in the

Singapore cellular market as ~5% of our target price comes from the cellular market.

Additionally, the expectations of special dividends from the Netlink Trust IPO, over the

next 12-15 months, will limit the downside potential in the stock, in our view. We value

Singapore and Australia businesses using DCF methodology and the international

associates at their respective CS target prices. Singapore accounts for ~19% of our

target price while Optus contributes ~22%, Telkomsel ~27%, Airtel ~12%, AIS ~8%,

Globe ~5%, Intouch ~3%, and others account for the remaining ~4%.

Figure 31: SingTel SoTP based valuation

(S$ mn) Equity value SingTel's stake Equity value Equity value

/share (S$)

% contribution

Singapore 13,993 100.0% 13,993 0.86 18.6%

Australia 16,339 100.0% 16,339 1.00 21.8%

Total Core 30,332 30,332 1.86 40.4%

Telkomsel - Indonesia 57,473 35.0% 20,116 1.23 26.8%

Bharti - India 25,328 36.3% 9,189 0.56 12.2%

AIS - Thailand 26,501 23.3% 6,175 0.38 8.2%

Globe - Philippines 8,612 47.2% 4,065 0.25 5.4%

Intouch - Thailand 10,141 21.0% 2,130 0.13 2.8%

Others 3,079 0.19 4.1%

Total Associates 44,753 2.74 59.6%

Total SingTel Group 75,085 4.60 100.0%

CS TP (Rounded) 4.60


2 March 2017


Companies Mentioned (Price as of 28-Feb-2017) Advanced Info Service PCL (ADVANC.BK, Bt167.0) Axiata Group Berhad (AXIA.KL, RM4.43) Bharti Airtel Ltd (BRTI.BO, Rs365.15) China Mobile Limited (0941.HK, HK$85.6) China Telecom (0728.HK, HK$3.65) China Unicom Hong Kong Ltd (0762.HK, HK$9.44) ChungHwa Telecom (2412.TW, NT$102.0) DiGi.Com (DSOM.KL, RM5.04) Far EasTone Telecom (4904.TW, NT$74.0) Globe Telecom (GLO.PS, P1828.0) HKBN (1310.HK, HK$9.05) HKT Trust (6823.HK, HK$10.36) Hutchison Telecommunications HK Holdings Ltd. (0215.HK, HK$2.43) Idea Cellular Ltd (IDEA.BO, Rs115.45) Jasmine International (JAS.BK, Bt8.8) KT Corp (030200.KS, W30,450) LG Uplus (032640.KS, W12,800) M1 Limited (MONE.SI, S$2.08, UNDERPERFORM, TP S$1.5) Maxis Berhad (MXSC.KL, RM6.31) PCCW (0008.HK, HK$4.73) PT Indosat Tbk (ISAT.JK, Rp7,100) PT Telkom (Telekomunikasi Indo.) (TLKM.JK, Rp3,850) Philippine Long Distance Telephone Company (TEL.PS, P1460.0) Pt Link Net Tbk (LINK.JK, Rp4,860) Reliance Communication Ltd (RLCM.BO, Rs38.9) Singapore Telecom (STEL.SI, S$3.94, OUTPERFORM, TP S$4.6) SmarTone Telecom (0315.HK, HK$10.54) Spark NZ (SPK.NZ, NZ$3.59) StarHub Ltd (STAR.SI, S$2.88, UNDERPERFORM, TP S$2.25) Taiwan Mobile (3045.TW, NT$108.0) Telekom Malaysia (TLMM.KL, RM6.16) Telstra Corporation (TLS.AX, A$4.82) Total Access Communication PCL (DTAC.BK, Bt43.5) True Corp PCL (TRUE.BK, Bt6.25) XL Axiata Tbk (EXCL.JK, Rp2,990)

Disclosure Appendix

Analyst Certification I, Varun Ahuja, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for KT Corp (030200.KS)

030200.KS Closing Price Target Price

Date (W) (W) Rating

10-Mar-14 28,800 35,000 N

08-Apr-14 31,250 37,000

08-Jul-14 30,700 36,000

13-Feb-15 29,200 36,000 O

04-May-15 32,250 40,000

07-May-15 31,100 37,000

30-Oct-15 29,550 37,000 *

07-Mar-16 28,500 36,000 *

30-Jun-16 29,650 37,000

01-Aug-16 32,600 38,000

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L

O U T PERFO RM

2 March 2017


3-Year Price and Rating History for LG Uplus (032640.KS)

032640.KS Closing Price Target Price

Date (W) (W) Rating

28-Apr-14 10,150 13,000 O

22-Sep-14 12,250 15,000

26-Jan-15 12,500 16,000

07-May-15 9,850 12,000

28-Oct-15 11,350 13,000 *

07-Mar-16 10,300 12,800 *

01-Aug-16 11,400 13,000

31-Oct-16 11,800 13,800

02-Feb-17 11,550 15,000


O U T PERFO RM

3-Year Price and Rating History for M1 Limited (MONE.SI)

MONE.SI Closing Price Target Price

Date (S$) (S$) Rating

15-Jul-14 3.59 3.73 N

19-Jan-15 3.62 3.85

07-Oct-15 2.92 2.35 U *

19-Jan-16 2.50 2.15

13-Apr-16 2.48 2.05

02-Sep-16 2.51 2.00

19-Sep-16 2.43 1.75

18-Oct-16 2.33 1.65

24-Jan-17 2.17 1.55


N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Singapore Telecom (STEL.SI)

STEL.SI Closing Price Target Price


03-Apr-14 3.67 3.90 N

05-Jun-14 3.86 3.84

15-Aug-14 3.91 4.00

12-Feb-15 4.18 4.15

08-Oct-15 3.77 4.25 O *

13-Nov-15 3.86 4.40

14-Jan-16 3.50 4.20

12-Apr-16 3.69 4.35

12-May-16 3.89 4.40

20-Jun-16 3.85 4.45

11-Aug-16 4.27 4.75

05-Sep-16 3.95 4.65

19-Sep-16 3.97 4.55

10-Nov-16 3.84 4.50

09-Feb-17 3.88 4.60


N EU T RA L

O U T PERFO RM

2 March 2017


3-Year Price and Rating History for StarHub Ltd (STAR.SI)

STAR.SI Closing Price Target Price


15-Jul-14 4.14 3.95 U

08-Oct-15 3.58 3.10 *

21-Jan-16 3.33 3.05

17-Feb-16 3.56 3.00

19-Sep-16 3.46 2.65

06-Feb-17 2.80 2.35


UN D ERPERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

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2 March 2017


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Target Price and Rating Valuation Methodology and Risks: (12 months) for M1 Limited (MONE.SI)

Method: Our 12-month target price of S$1.50 for M1 Ltd is based on discounted cash flow valuation based on a 7.2% weighted average cost of capital (WACC) and a 0.0% terminal growth rate. Our 7.2% WACC is based on a 8.0% cost of equity and a 3.7% cost of debt (post tax shield). At our target price, M1 would be trading at an FY17E/18E EV/EBITDA of 6.0x/6.7x below its historical range as we expect entry of fourth cellular operator in Singapore market leading to pressure on earnings and hence dividend and accordingly we maintain our UNDERPERFORM rating.

Risk: Risks to our 12-month target price of S$1.50 and UNDERPERFORM rating for M1 Ltd include: (1) absence of fourth cellular operator from Singapore Telecoms sector, (2) more severe than expected competition among the telcos in Singapore, (3) slower than expected growth in key business segments in Singapore and (4) changes in regulatory environment.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Singapore Telecom (STEL.SI)

Method: Our target price of S$4.60 for Singapore Telecom is based on a sum-of-the parts calculation. The core Singapore and Australia operations within the sum-of-the-parts, which contribute S$1.86 of the total, are valued using discounted cash flow (DCF) analysis. For Singapore, we use an estimated 6.8% weighted average cost of capital (WACC) and we use a terminal growth rate of 0.0% for mobile and 0.0% for fixed line, For Australia, we use an estimated 7.5% WACC and we use 0.5% terminal growth. The associates, which contribute S$2.74 within our sum-of-the-parts, are also valued using DCF. For Singtel's 35% stake in Telkomsel, we value at S$1.23. For Singtel's 36% stake in Bharti Airtel, we value at S$0.56. For Singtel's 23% stake in AIS, we value at S$0.38. For SingTel's 21% stake in Intouch, we value at S$0.13. For Singtel's 47% stake in Globe, we value at S$0.25. We also value Singtel's 26% stake in SingPost at S$0.04 and 100% stake in NetLink Trust at S$0.14. We have an OUTPERFORM rating on SingTel primarily due to its international exposure.

Risk: The key risks to our S$4.60 target price and OUTPERFORM rating for Singtel include: (1) Foreign currency fluctuations, (2) more severe than expected competition among the telcos in Singapore and Australia, as well as key regional markets, (3) slower than expected growth in key business segments in key regional markets, (4) changes in regulatory environment, and (5) acquisition risk.

Target Price and Rating Valuation Methodology and Risks: (12 months) for StarHub Ltd (STAR.SI)

Method: Our target price of S$2.25 for Starhub is derived from discounted cash flow (DCF) based on weighted average cost of capital (WACC) of 7.2%, 0.0% terminal growth rate for mobile, 0.0% for cable & broadband, and 0.0% for Fixed network services respectively. Our 7.2% WACC is based on a 8.0% cost of equity and a 3.7% cost of debt (post tax shield). At our target price, StarHub would be trading at an 2017E/18E EV/EBITDA of 7.3x/7.9x below its historical range as we expect entry of fourth cellular operator in Singapore market leading to pressure on earnings and accordingly maintain our UNDERPERFORM rating.

Risk: Key risks to achievement of our S$2.25 target price and UNDERPERFORM rating for StarHub include: (1) less severe than expected competition among the telcos in Singapore, (2) higher than expected growth in key business segments in Singapore and (3) lower than expected capital expenditure and higher than expected savings from infrastructure sharing arragement with M1.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (STEL.SI, STAR.SI, 6823.HK, SPK.NZ, ISAT.JK, TLS.AX, EXCL.JK, 1310.HK, GLO.PS, TRUE.BK, DSOM.KL, LINK.JK, TLMM.KL, RLCM.BO, 0215.HK, AXIA.KL, TLKM.JK, TEL.PS, 0008.HK, ADVANC.BK, 030200.KS, 0315.HK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (STEL.SI, EXCL.JK, 1310.HK, GLO.PS, DSOM.KL, AXIA.KL, TLKM.JK, TEL.PS, ADVANC.BK) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (STEL.SI, DSOM.KL, TLKM.JK) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (STEL.SI, EXCL.JK, 1310.HK, GLO.PS, DSOM.KL, AXIA.KL, TLKM.JK, TEL.PS, ADVANC.BK) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (STEL.SI, MONE.SI, STAR.SI, 6823.HK, BRTI.BO, SPK.NZ, ISAT.JK, DTAC.BK, TLS.AX, EXCL.JK, 1310.HK, 0762.HK, GLO.PS, TRUE.BK, 3045.TW, IDEA.BO,

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2 March 2017


DSOM.KL, LINK.JK, TLMM.KL, RLCM.BO, 0215.HK, AXIA.KL, TLKM.JK, 2412.TW, 032640.KS, 0728.HK, TEL.PS, 0008.HK, ADVANC.BK, 030200.KS, 0315.HK) within the next 3 months. Credit Suisse may have interest in (DSOM.KL, TLMM.KL, AXIA.KL, MXSC.KL) Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014 Credit Suisse may have interest in (BRTI.BO, IDEA.BO, RLCM.BO) As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (0762.HK, 2412.TW, 0728.HK, 4904.TW). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (TRUE.BK, 032640.KS, 030200.KS).

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Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. The following disclosed European company/ies have estimates that comply with IFRS: (TLMM.KL). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (STEL.SI, DSOM.KL, LINK.JK, RLCM.BO, TLKM.JK) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Jasmine International () , Total Access Communication PCL (Excellent) , True Corp PCL (Very Good) , Advanced Info Service PCL (Excellent) Taiwanese Disclosures: This research report is for reference only. Recipients should carefully consider their own investment risk and note they may be subject to the applicable rules and regulations in Taiwan, including the requirements under the Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers ("Taiwan Recommendation Rules") on conflicts of interest. Investment results are the responsibility of the individual investor. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Recommendation Rules. Reports may not be reproduced without the permission of Credit Suisse. Credit Suisse has entered into a strategic partnership with First NZ Capital ("FNZC"). Pursuant to this agreement, (SPK.NZ) is jointly covered by Credit Suisse and First NZ Capital. This research report is authored by: Credit Suisse AG, Singapore Branch ........................................................................................................................................... Varun Ahuja, CFA To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse AG, Singapore Branch ........................................................................................................................................... Varun Ahuja, CFA

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2 March 2017


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